Chapter 1

U.S. Beer Industry

Beer Distribution

The industry is organized into a so-called "three-tier" distribution system: 1) brewers and importers, 2) wholesalers, and 3) retailers. Under this system, brewers and importers sell their products to wholesalers who in turn sell to the retailers. (Supplier, wholesaler, and retailer are the three tiers.) As explained above, when states took over regulation of these three tiers after Prohibition, they chose to either license or directly control sales and distribution. These laws (known as "tied house" laws), adopted at the state and federal levels, regulate how alcoholic beverages are marketed and how the various tiers of the industry interact.

Brewers and Importers

This tier includes firms that brew beer and other malt beverages, and firms that import malt beverages for consumption in the United States. The brewing tier also includes company-owned packaging and wholesaling operations. Brewers include major multistate multi-operational brewing companies, regional brewers, microbrewers, and brewpubs.

Wholesalers

Beer wholesalers serve as the middle tier in the three-tier system. They purchase beer from suppliers and importers and, in turn, sell beer to retailers. In general, a brewer sets the wholesale price at the brewery (freight on board, f.o.b.) but may vary price by region of the country in response to different demand and levels of competition.

Wholesale Consolidation

Since 1995, the number of distributors has dropped from 5,500 to about 2,000 as smaller multi-brand wholesalers have been bought out. Rising costs as well as the need for scale and for broad, well-balanced portfolios has driven consolidation among U.S. beer wholesalers.

Retailers

Finally, the third tier of the industry directly sells products to the consumer either by on-premise or off-premise sales. On-premise retailers were those retailers that sold beverages to be consumed at that location. These include restaurants, hotels, bars, etc.

Retail Consolidation

Over the last decade or so, the off-premise retail segment for beer has changed dramatically. While traditional liquor stores and mom-and-pop operations continue to account for a significant share of off-premise beer sales but in ever decreasing numbers, national retail chains-supermarkets, drug stores, membership clubs, or convenience stores-are increasingly accounting for an increasing share of total market volume.

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